7 ways to give the solar market a big bounce

What needs to happen for the solar industry to recover from the current slump? That’s been the question on the minds of manufacturers, service providers and investors in the past few months when solar panels were piling up in warehouses and prices were falling faster than a Russian rocket.

Applied Materials (s AMAT), which sells solar factory equipment, reported its fiscal third-quarter earnings yesterday and, unsurprisingly, it saw a decline of sales during the first six months of this year. Its chief executive, Mike Splinter, struck an optimistic note when he told analysts on Wednesday that solar market demand is “now accelerating.” Its chief financial officer, George Davis, was more cautious and noted it’s too early to say the current quarter will be the tail end of the slump.

Advertisement

Here is a list of trends that could give the solar market a big boost:

1. Making solar affordable. Prices of solar panels have fallen quickly this year – IMS Research noted last month a 15-percent drop during just a six-week period earlier this year. That has hurt solar manufacturers, who experienced big declines in profits or posted higher losses for the first half of 2011. But it’s good news for consumers. For solar to overtake conventional sources of electricity such as coal and natural gas, it has to become cheaper. Cheaper solar panels should speed up solar energy deployment.

2. Growth in emerging markets. Already, you are seeing more sales deals and project development activities in countries that in the past might have considered solar too expensive. It also helps that some of these countries have added policies to subsidize solar power projects. India has become a sought-after market. The CEO of First Solar (s FSLR), Rob Gillette, gave India a shout-out earlier this month by noting the company will likely ship twice the amount of solar panels in 2011 than it initially thought at the beginning of this year.

3. The China factor. Splinter pointed to China as a key indicator for the solar market growth. China has been largely a solar manufacturing and exporting country, but it could one day become a big user of solar energy (And why not? It’s got a huge and growing fleet of solar equipment factories). Earlier this month, the Chinese government announced incentives that will guarantee solar electric pricing for project developers. This type of incentives, called feed-in tariffs, has made countries such as Germany and Italy the largest in the world. “If China’s feed-in tariff comes in and creates a couple of gigawatts of demand next year, then we will see a turnaround in capital” spending, Splinter said.

4. A switch from solar thermal technology. Several developers in the United States have opted to ditch solar thermal technology and use solar panels for their projects instead. Solar thermal technology generally uses mirrors to concentrate the sunlight for producing steam, which is then piped to run turbines for generating electricity. Solar Trust of America grabbed attention last week when it announced it would make the switch for the first 500MW of its 1 GW Blythe Solar project in California.

Brett Prior, a senior analyst at GTM Research, has counted nearly 3GW of projects that are making the technology change. One of them, Ridgecrest Solar, is also under development by Solar Trust. Solar Trust is stirring up controversy by asking the California Energy Commission to become the lead permitting agency, even though the commission doesn’t oversee power plants that use solar panels. The commission on Wednesday decided to give the public until Sept. 16 to file any written support or objection to Solar Trust’s request. The commission will set a hearing date after that.

5. Launching new solar programs. California regulators last week approved a 1GW program to encourage the installation of solar power projects that are up to 20MW in size. The idea is to reduce the need to build transmission lines and minimize the impact on the environment by promoting smaller projects that will sit closer to the communities they serve. The program’s first auction, to be held of the three investor-owned utilities, will take place in the fourth quarter of this year.

6. More government help. Solar executives and lobbying groups are hoping federal lawmakers would continue to fund a few existing renewable energy programs that have provided some much-needed capital for solar manufacturing and power plant construction in the past two years. This might be wishful thinking, since lawmakers are focused on cutting spending these days. The solar industry especially wants to save a program that provides cash to cover 30 percent of a solar project’s cost.

7. A healthier economy. The economy still feels shaky, and that will affect a government’s willingness to subsidize solar energy. Italy cut its solar incentives earlier this year to lessen the burden on consumers, who pay for the subsidies through their electric bills. In the United States, surveys have shown that consumers aren’t feeling like they have a lot of cash to spare, and that means they’ll likely be less willing to invest in something pricy like a solar electric system. Lower prices for solar panels will help to make solar more affordable, of course. But a better economy also will give the solar market a big boost.